B.

IV. Competition
1. Chaebol
a. Definition
- A group of massive, mostly family-run business conglomerates, dominates South
Korea’s economy and wields extraordinary influence over its politics.
- Chaebol drives the majority of South Korea’s investment in research and development.
b. Name of typical chaebols in South Korea

To help you understand how powerful these chaebol are, we take SS and Huyndai for
exampble
Samsung (established in 1938)
- Samsung Group is South Korea’s most profitable chaebol,
- Start as a fruit exporter to China
- And now, after eighty years developing, it has diversified to electronics, insurance,
ships, luxury hotels, hospitals, an amusement park, and an affiliated university.
- Just take one of its subsidiary - Samsung Electronics for example: it accounted for
more than 14% of South Korea’s GDP for the past decade.
Hyundai (1947 originally a construction business)
- Grew immensely across the automotive, shipbuilding, financial, and electronics
industries.
- In 2003, due to financial crisis and after the dealth of its founder, it broke up into five
distinct firms, among them:
o Including: Hyundai Motor Group: the 3rd largest carmaker in the world
o Hyundai Heavy Industries: the world’s largest shipbuilding company.
c. A brief history of Chaebol (theo trình tự thời gian)
- Flourished under the leadership of General Park Chung-hee.
- Under his export-driven development strategy, government prioritized preferential
loans to export businesses and insulated domestic industries from external
competition.
- After that, they Expanded into new industrial sectors and lucrative foreign markets
- Exports turnover grew from 4 % of GDP (1961) to more than 40% (2016)
- However, facing the financial crisis 1997, and under the pressure of the World Bank in
clarify regulatory problem, chaebol system was reformed: in which:
o Providing: New corporate transparency measures
o Cut to government subsidies
o investment activities are Public
 However, that was the first step to help them penetrate into
global markets.
d. Chaebols and pressure of competition
- With their huge potential strengths in finance and human resources
=> They are undeniably the most motivation for Korea’s research and development
activities
=> and help to Create the competitive strengths against other global company.

- However, it leads to unfair competition to local SMEs:

o When they Use monopolistic clout to squeeze SMEs out of the market
 By: Copying their innovations or buying out the SMEs.
 Chance of survival of SMEs in this predatory
environment is very small.
 
- Top 5 of largest chaebols: hold more than 75% market capital
- This shows the lack of transparency in investment activities.
=> Causing: The unfair competition
=> Negative impact on economic system
e. The need to reform the chaebol system
- To solve this problem of transparency in investment activities and open more chance
for SMEs, Changing the chaebol system’s culture which has deeply entrenched will
take time.
- However, economists suggest some policies:
o Tougher antitrust laws
o Ban on all cross-shareholding among subsidiaries
o Greater voice to minority shareholders
 finally break the dominance of the chaebol.

2. Supplier power, buyer power, threat of new entrants, threat of substitution

We take smartphone production to analyze
a. Supplier power:
- Bargaining power of suppliers in smartphone industry: very low
- Because powerful Chaebols like Samsung, LG… are self-sufficient in producing
processes. => Chaebol corporations have a huge and deep impact on local economy
and have my exclusive right.
b. Buyer power
- The bargaining power of customers is moderate. It is affected by: product quality,
brand image, and prices.
c. Threat of new entrants
- The threat of new entrants: moderate
- The barriers to entry are not very high and general
- Factors affect:
o Aggressively invest in marketing of incumbent players
o legal framework acts as a barrier to entry.
o Level of demand has plateaued in recent years.
o Eg: If the new entrants want to invest in Korea smartphone market, it has to
complete against tens of Chinese (exclude iPhone) to get the highest
percentage as possible in 1% market share remained.
d. Threat of substitution
- Mainly comes from rival brands and their products.
- Korea is considered as the “home market” or playground of Samsung – top 3 rd largest
smartphone manufacturers.
- Korean smartphone users have 02 significant factors:
o High loyalty with local brand products
 Using local brands product is considered as the pride of the nation
 Tend to consume flagships and high-end products.
Smartphone market share in Korea
Q2 2018 Q2 2019 Q3 2019
Samsung 67% 68% 71%
LG 17% 17% 17%
Apple 14% 14% 11%
Source: Counterpoint research
- To overcome the threat from substitutes brands:
o Differentiation in technology (difficult)
o Focus on their pricing strategies and customer experience.
o Korean Chaebol smartphone brands are deploying excellently at a global level.
So, the threat of substitute in Korea smartphone market is very low
3. Conclusion
- The competition in Korea investment is among Chaebols, between Chaebols and local
SMEs and foreigner investor.
- Chaebols play an important role in all aspects of the national economy, which bring
both pros and cons.
- To keep the stable and positive economic growth in the future, the Korean government
has to widen the investment policies, take care SMEs and also create a more equal
playground for them to develop their initial strengths and different advantages from
old Chaebols.

C. Korea’s current investment environment

- What makes ROK an attractive investment destination for foreign investors?

o Political stability, public safety, world-class logistics and ICT,…
- Investments orientation
o Toward: Finance and insurance, trade, manufacturing, real estate, information
and communication, mining and quarrying and transportation

- Main 2018,
2018, in Main Invested Sectors
Investing in %
%
Countries
Manufacturing 38.2
Japan 25.5
Financial and insurance 28.5
United States 15.1
Wholesale and retail trade 11.3
Netherlands 10.1
Accommodation and food 7.4
United 7.6 service
Kingdom
Real estate 5.0
Singapore 7.2
Information and communication 3.6
Germany 4.4
Transportation and storage 1.4
Malta 4.3
Professional, scientific and 1.2
China 3.8 technical activities

Hong Kong 3.3

 Source: OECD Statistics - Latest available data.

- UNCTAD’s 2020 World Investment Report:

o FDI inflows: decrease by 13% (trade tension with Japan)
o FDI stocks: increase from USD 135 billion (2010) to USD 238.5
o Investment flows from major investors (China, the EU and Japan): decrease
o Investment from US: tend to increase (still lower than the annual average
2013-2017)

- Result from Korean International Trade Association’s research:

o Show the underperformance in attracting FDI relative to the size and
sophistication of its economy
o => due to burdensome regulatory environment.

Foreign Direct Investment 2017 2018 2019

FDI Inward Flow (million USD) 17,913 12,183 10,566

FDI Stock (million USD) 229,399 237,238 238,553

Number of Greenfield Investments* 120 136 117

Value of Greenfield Investments 5,234 8,539 3,608

(million USD)

Source: UNCTAD, Latest available data

- South Korea's appeal in terms of FDI is the result of rapid economic development and
specialization in ITC.
- ROK is ranked 5th in Doing Business 2020 ranking by the World Bank
 Source: Doing Business 2020

- However, the lack of general transparency in regulations remains a major concern for
foreign investors
- High household debt and labor market slack limit private consumption.
- Higher oil prices pushed inflation toward the 2% inflation target and current account
surplus remains large.

D. SOLUTION
- It is urgent to develop strategies to strengthen the spread of foreign investment.
- Some measures to improve Korea investment climate:
o Attract global companies moving out of China
 South Korea's growth rate is expected: highest among OECD members,
second among the G20
 Due to COVID-19 crisis, the waves of moving out of China open a
chance for Korea.
 The strategy now: identify investment projects to adapt Global Value
Chain and focus on investment needs that are vulnerable to variable-out
risks: electronics, logistics, pharmaceuticals, and automobiles.
o Prevent the withdrawal of existing foreign-invested companies
 It might be more important than attracting new foreign investment,
especially in current COVID-19 crisis.
 New business incentives should be applied to support possibly shrink or
withdraw companies
 Reducing tax rate or accept companies to pay tax later
 o Skills development & Labor policies
 Investing in basic education and skills to secure the foundation
=>Foster a better matching between supply (labor) and demand
(employer)
 Modify the labor law and policies to be more friendly with current
situation.
o Assess risks and monitor investment climate improvements
 Develop a multiplicity of risk assessment processes in different policy
perspectives: humanitarian, conflict, environmental and economic
 Continuously revise, make it be adapted to better cover risks related to
the investment climate and oriented more towards the private sector.
=> Become an essential analytical and management tool for both
budget support and consideration.

1. E. CONCLUSION
Korea has gained achievement, to some extent, in attracting foreign investment, especially
FDI. Even though there still exist some limits on foreign control and right to private
ownership and with the rising of other competitors, we believe that in the future, Korean
government will build an effective strategy to improve transparency in regulation to keep the
sustainable inflows of investment along with take advantage of opportunities coming after
COVID19 crisis.